European Union: Blocked Out: Why The EU Will Struggle To Counter US Sanctions With Blocking Legislation

Last Updated: 16 May 2018
Article by Patrick Murphy

There has been much discussion in recent days about the EU using so called "blocking legislation" to counter the reintroduction of US secondary sanctions against Iran, as it did in 1996 with US sanctions against Cuba. The potential trans-Atlantic battle of legislation did not materialise then because of a political resolution of the differences. But a precedent was set. Can it work again now?

The model is Regulation 2271/96 which was passed in 1996 to "counteract the effects of the extra-territorial application" of US sanctions under the Helms Burton Act (Cuba) and Iran and Libya Sanctions Act.

The old US Cuba sanctions imposed requirements on non-US persons to cease trafficking (i.e. dealing) in Cuban property formerly owned by US persons or potentially face judgments from US courts to pay compensation. The Iran and Libya sanctions prevented investments in Iran or Libya that could significantly contribute their development of petroleum resources.

The 1996 Blocking Regulation

The EU blocking legislation did a number of things: it required EU persons whose economic interests were affected by the sanctions to report this to the Commission; it prohibited the recognition or enforcement of foreign judgments for compensation within the EU; it enabled EU persons to recover damages from US claimants who had caused them loss by the application of the US sanctions; and it prohibited EU persons from complying actively, or by deliberate omission, with any prohibition resulting from the legislation.

The 2018 iteration of US secondary sanctions are notably different to the 1996 Cuba sanctions. Firstly, the potential penalties for engaging in any of the activities targeted by the US secondary sanctions are what are referred to as "denial of access" penalties. The choice the US gives non-US persons is to avoid carrying out the activities targeted by the US secondary sanctions (i.e. providing significant support to Iran's energy sector) or risk being denied access to crucial elements of the US economy. That means, potentially, losing the ability to obtain finance from US banks, bid for US government contracts, travel to the US or, in extremis, asset freezes and the loss of the ability use US dollars. The legal mechanism by which the US would enforce these penalties would be to actually impose primary sanctions prohibitions on US persons preventing them from, say, providing finance to the non-US person in question or designating the non-US person as a SDN, thus obliging US persons to freeze their assets and prevent dollar clearing.

These are quite different to the penalties under the old Helms-Burton Act, which were positive obligations to pay money judgments for trafficking in Cuban property. It was relatively easy for the EU to offer protection from those penalties by preventing the enforcement of judgments within the EU and providing for causes of action in the EU against US claimants. The old blocking legislation may have worked to protect EU firms from Helms-Burton penalties, but it is difficult to see how, for example, the EU, through blocking legislation, can prevent a US bank from complying with US law requirements to freeze the assets of designated person.

But the old US sanctions against Iran and Libya were much closer in nature to the modern US secondary sanctions against Iran, both in the actions they proscribed and the penalties they imposed: in 1996 these included import and export restrictions, the loss of primary dealer status and denial of access to loans from US financial institutions. The inability of the EU to effectively counteract these prohibitions did not dissuade it from passing the blocking legislation in 1996, so why should it now?

It's the financial institutions, stupid

The answer may lie in the fact that in 1996 there were few other restrictions on EU firms investing in Iran or Libya. It would, therefore, have been relatively easy to enforce blocking legislation that required EU firms to report incidents where their interests were affected by US sanctions and prohibit them from complying with those restrictions. After all, the US had already provided the example of how blocking legislation could work effectively with its own anti-boycott legislation, which requires US firms not to comply with the Arab boycott of Israel, and report incidences where they had so complied (and face penalties for doing so).

But the position is somewhat different today, largely due to the role that international financial institutions (and their dramatically beefed up compliance functions) play in the enforcement of sanctions.

Most major financial institutions outside the US are much more intimately connected to or reliant upon the US financial system and the ability to clear US dollars than they were 20 years ago. And in the face of considerable overlapping and conflicting compliance obligations they comply with the most stringent forms of legislation in order to ensure cost effective compliance. When it comes to dealing with sanctioned jurisdictions generally, and Iran in particular, that has effectively meant that they comply with the often more stringent US sanctions position. Even after Implementation Day, the US maintained stringent primary sanctions prohibiting US persons from dealing with Iran, and this is often the base line compliance standard adopted by even non-US financial institutions. Indeed, they often deliberately over-comply with even that position: more than six months after the removal of US financial sanctions against Sudan, it is still all but impossible to find a major financial institution that will process payments in any currency for transactions connected to Sudan.

The effect of this compliance outlook is the imposition of sometimes onerous terms and conditions on banks' customers. These will usually prevent customers from using accounts to engage in business with sanctioned jurisdictions - irrespective of the currency used or whether or not the funds are being transferred to or from that jurisdiction. They will also commonly restrict the ability to use the proceeds of any lending for the purpose of business with sanctioned jurisdictions. It is not just banks that have imposed such restrictions: insurers too have made extensive use of sanctions clauses to limit cover where they might be exposed to sanctions risk. And even outside the financial institution community, sanctions clauses and warranties are used in commercial contracts to prevent counterparts reselling goods to Iran, for example.

That has largely been the position even throughout the interregnum of US sanctions relief following Implementation Day in January 2016. In fact, Secretary of State John Kerry earned something of a rebuke from HSBC in 2016 when he urged non-US financial institutions to increase engagement with Iran, being reminded tartly that most financial institutions' links to the US will constrain their ability to do so.

The reality today is that many EU (and non-EU) firms refrain from business with Iran not because of any legal prohibitions, but because of the contractual restrictions imposed on them. That was simply not the case in 1996. To actually be effective, therefore, any new blocking legislation will need to differentiate between a refusal to do business with Iran due to US secondary sanctions and a refusal that is imposed by contractual restrictions from financial institutions or otherwise. The alternative is to compel financial institutions to remove those restrictions from terms and conditions. Both would be incredibly difficult to either legislate for or enforce.

Moving the goalposts

It also sits rather uneasily with the changed compliance landscape after President Trump's 8 May announcement. After all, these same financial institutions have been unwilling to support trade with Iran for more than 2 years now, even in the absence of US secondary sanctions. There has been no legislative compulsion on them to support EU firms looking to do business during that time. It would be rather odd to change the rules of the game and impose such a restriction now - once their regulatory exposure has actually been increased by the re-introduction of US secondary sanctions.

Moreover, legislators and regulators cannot have their cake and eat it: the general anti-money laundering and counter terrorist financing compliance obligations of financial institutions are vastly more complex and onerous to comply with now than they were 20 years ago. It would sit uneasily with these obligations to force EU financial institutions to support business with Iran. It should not be forgotten that the EU still maintains its own - admittedly more limited - sanctions program against Iran, designating a number of entities still for asset freezes.

All in all, it will be difficult therefore for the EU to effectively counter US extra-territorial sanctions by means of blocking legislation alone. The other tactic pursued by the EU in 1996 was to refer the matter to the WTO, alleging that the US sanctions breached obligations to other WTO members under the GATT and GATS. The US response at the time was to threaten the use of the rarely used tool of the national security exception. It would not be a leap of the imagination to see President Trump making similar threats in this case. Ultimately, the resolution of any dispute between the US and EU lies in the old art of power politics.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions